The Dos and (Compliance) Don'ts of Client Events

When advisors create distinctive special events for a select group of clients, the idea is fairly simple: If the experience is exceptional enough, it will create a bond that is so strong that it is worth whatever cost and effort the advisor puts in to pull off the event.

Some are convinced that it does. Melissa Murphy Pavone, a financial advisor at Oppenheimer in Hauppauge, N.Y., for example, says, Its nice to have interactions outside an office setting because it helps her to get to know clients better. She particularly enjoys sponsoring cooking classes, where everyone gets dirty making a meal.

Such events include an educational component, she says, and they make the clients feel special. At the end of one cooking class, clients were given personalized chef coats, which everyone really enjoyed and made for a nice memory.

She says clients who take part in such experiences demonstrate both pleasure and loyalty, and she is convinced that this leads to referrals and very low attrition rates.

INVOLVE THE OTHER HALF

Another really important aspect that Pavone mentions is engaging the spouse.

There is always a primary client in a spousal arrangement, and having special events allows the team to meet both partners. A 2011 white paper, Womens Views of Wealth and the Planning Process by Kristan Wojnar, a practice management specialist at Guggenheim Funds, and the recruiter Chuck Meek, points out that in the case of a spouses death, 70% of women change financial advisors within a year.

If the advisor isnt already engaged with the other half of a partnership before a client dies, the likelihood of maintaining the relationship is slim.

Seminars and personalized experiences are a way to engage advisors and clients together in an environment that is relatively relaxed so they can get to know each other. Rocco Carriero, who heads an independent wealth advisory team with Ameriprise in Southampton, N.Y., says he plans six to eight high-end events each year that deepen his relationships with his existing clients. He is confident that these events ultimately increase production.

AVOID DIRECT MAIL

Carriero has offered seminars since the start of his career, and he has learned something along the way. Promoting seminars with direct mailings, he says, is akin to buying strangers dinner. He estimates that about 90% of the attendees invited by mail to one event were interested only in a free restaurant dinner and werent even sure why they were there, Carriero recalls.

Over time, he has found that more intimate events for smaller groups, like an evening that included dinner and a private tour of the New York Stock Exchange, give specially chosen clients a unique experience.

Carriero says these clients can afford to do what they want. Therefore, its essential to make the experience unparalleled. Were anti-status-quo, he says. We never want to commoditize the experience, and we dont do anything conventional.

Carriero has even held an educational seminar for his team at the high-end New York restaurant Le Bernardin. The group interacted with the staff of Executive Chef Eric Ripert, whose motto is If you serve great value, people will come to you. Carriero and his team say they have a similar mindset in serving clients.

COMPLIANCE DON'TS

But not everyone is convinced that special events are worth the effort. One advisor at a major firm, who asked for anonymity for compliance reasons, says she doesnt give seminars or hold events anymore because compliance makes it too complicated.

Another manager at the same firm, who also had to remain unnamed, agreed. Events can be an uphill battle fraught with compliance issues.

More complications pile on when a mutual fund company or similar vendor offers backing or sponsorship.

Compliance may require a minimal per-person fee, which makes the event either unappealing or impossible to execute.

Blame FINRA Rule 3220, the noncash compensation rule. The rule prohibits any member or person associated with a member, directly or indirectly, from giving anything of value in excess of $100 per year to any person where such payment is in relation to the business of the recipients employer.

The rule looks to avoid impropriety and preserve an employees duty to act in the best interests of that customer, which is why executing a special event has come under question.

In order to abide by this rule, advisors feel that firms are making approval so challenging that it isnt worth trying to fight the battle for an event that may or may not bring in additional business.

SOME LATITUDE ALLOWED

Other advisors believe that some firms may be reading the rule too narrowly.

The regulations make an exception for an occasional meal, a ticket to a sporting event or the theater or comparable entertainment which is neither so frequent nor so extensive as to raise any question of propriety and is not preconditioned on achievement of a sales target.

Such details do lead to gray areas. One professional suggests that an advisor wouldnt be allowed to give a client a $120 vase from Tiffanys, but could take her out to a dinner that costs more than $100.

Clearly, some firms make a more stringent reading of the rules than others, and accordingly these firms may have stricter internal policies that have discouraged some advisors from staging special events for clients.

Even at firms where advisors are given more latitude, those who stage special events say they take care to make sure everything is above board.

Pavone, for instance, says that to abide by the rules, we document what we do before, during and after an event.

WHAT CAN GO WRONG

Advisors who put on special events concede that they are a lot of work and that its possible for an event to run off the track. The remedy is to do extensive advance work: making sure no details are overlooked, booking speakers or other special guests, checking with compliance on details, inviting everyone and then reminding them  more than once.

One of the biggest challenges is making sure that the technology works, whether its for phone connections, laptops or PowerPoint presentations. If these fail, that can be disastrous for an event and make it memorable in a bad way.

But even if the main attraction comes off perfectly, there may be other problems.

One involves the talk among clients. Melissa Murphy Pavone, of Oppenheimer, notes that conversations need to be intimate, but generic. Occasionally, she has had a client who wanted to get into a discussion about their investment accounts or to delve into politics. That kind of talk, she notes, makes everyone uncomfortable. So its important to keep discussions focused on the event and to keep things light.